Canada’s Dundee, Inovalis raise fresh money for Germany

The Toronto-based Dundee International REIT, the investment trust focused exclusively on investing in German real estate, said earlier this month that it is raising about €95m (C$125m) in fresh funds for further acquisitions. The share allotment is being sold to a syndicate of underwriters led by Canadian financial services group TD Securities, with an option to increase the amount raised to €125m (C$144m).

The company has been on an investment spree already in Germany this year, having spent €593m primarily on buying a large block of 11 office properties in Berlin from the liquidating open-ended fund SEB Asset Management for €420m in March.

CEO Jane Gavan said in a statement accompanying this year’s first quarter results, “With our acquisition of 14 office properties during the quarter, we have transformed our asset base by adding prime office buildings in major German cities, diversified our tenant base with globally recognised names and continued the drive to create a high quality portfolio of real estate.”

Since then, Dundee has also completed the acquisition of the Löwenkontor property in Berlin for C$55m (€42m) at a cap rate of 6.9%. The firm also sold seven small properties for C$7m, bringing the total of its current German assets under management to C$1.87bn (€1.42bn)  

In first quarter, Dundee closed C$442m (€336m) of mortgage financings at an average interest rate of 2.58% and an average term of 7.1 years and also completed a public offering of 23m shares raising net proceeds of C$243m (€184m). In its leasing portfolio, the company further diversified its tenant profile by reducing exposure to its largest tenant Deutsche Post to 43% from 65% at end-2012 and 85% at end-2011. Occupancy rose to 85% from 83% at end-2012.

On top of that, there are several other deals in the pipeline. “Dundee International REIT is currently at various stages of due diligence on property acquisitions located in Munich, Stuttgart, Dusseldorf and Hamburg … with a combined purchase price of €269.3m,” the firm said in a separate statement. Negotiations on an asset in Stuttgart and another in Munich are already in exclusivity, it added. The latter two, anticipated to cost €95m at an average cap rate of 6.6%, have a total gross lettable area of 409,000 sq.ft. and an average occupancy rate of 97%, with a weighted average lease term of 6.5 years to a total of 18 tenants.

Meanwhile, Dundee is about to be joined in its German adventures by Inovalis REIT, a company which floated in March on the Toronto exchange specifically to invest in Europe. The group, which has been active in France and Germany for several years, is targeting fresh investment in both countries of up to €400m over the next five years. It already has more than 150 individual assets under management in Germany, France and Italy valued at more than €2bn. Inovalis is pursuing a strategy similar to Dundee International REIT, of creating a Canadian listed company to enable Canadians to gain overseas real estate exposure. Inovalis’s IPO raised C$114m (€86.6m), with Paris-based asset manager Inovalis SA taking a 10% stake in the new company.

Just prior to the IPO the company said it had bought three office properties in Paris and one in Hanover for the portfolio, with a total lettable space of 49,200 sqm and an occupancy rate of 96%. Canadian sources suggest the underlying strategy is to focus on European assets that have fallen at least 30% since 2007 and lock down new agreements with new tenants, aiming for cap rates above the 5% more typically achievable in Canada.